A design agency finishes a website on 29 March and sends the invoice on 4 April. A maintenance contractor bills quarterly in arrears. An IT consultancy invoices on the 5th for last month’s hours. In each case the work, and the right to be paid for it, belongs to the earlier month, but the invoice does not. Unbilled revenue, also called accrued income, puts that income where it was earned so that one month is not starved and the next inflated.
At a company’s year end it matters more: turnover and profit in the statutory accounts must include income earned under FRS 102, whether or not an invoice has gone out.
Is it really earned?
Only accrue income for work the customer is obliged to pay for. Ask:
- Has the work, or a separately billable stage of it, actually been delivered?
- Is there an agreed price, rate card or contract that fixes the amount?
- Is anything still subject to acceptance, sign-off or a dispute?
Income that has merely been agreed (a signed proposal for work starting next month) is not accrued. Money received before the work is done is the opposite case, deferred income, explained in deferred income and revenue recognition.
Estimating the amount
Build the figure from operating records, not from memory:
- Hourly work: approved timesheet hours for the period multiplied by the agreed charge rate, less any hours that will be written off.
- Fixed-fee milestones: the fee for milestones completed but not yet invoiced.
- Usage or metered services: usage reports up to the last day of the period at contract prices.
- Ongoing fixed-fee work billed in arrears: the share of the fee for the elapsed part of the billing period.
Keep a short schedule per customer showing the basis, the figure and the expected invoice date.
Journal and reversal
An IT consultancy has 64 approved hours for a client in October at £95 an hour, to be invoiced on 5 November: £6,080.
31 October, flagged to reverse on 1 November:
| Account | Debit | Credit |
|---|---|---|
| Accrued income | £6,080 | |
| Consultancy income | £6,080 |
On 1 November the reversal removes the £6,080 from November’s income. On 5 November the real invoice posts £6,080 of income plus VAT to the customer’s account. October shows the income; November nets to nil for it. Reversals and the double-counting traps are covered in reversing journals after month end.
In the balance sheet, accrued income is a current asset reported within debtors, under prepayments and accrued income in the Companies Act formats.
What about VAT?
The accrual journal carries no VAT, because it is not a supply document. But do not assume VAT can wait for the invoice. For a one-off service, the basic tax point is when the service is completed; an invoice issued within 14 days of that usually becomes the tax point instead. If you complete a job and leave it unbilled for longer, the completion date can already be the tax point, and the VAT belongs on that return. The rules are explained in VAT on advance payments and tax points. Continuous services billed periodically follow different rules, generally the earlier of invoice and payment.
Evidence to keep
For every accrued income line, the year-end file should be able to answer “how do you know?”:
- approved timesheets or a time-recording export;
- the contract, purchase order or rate card;
- a delivery note, customer sign-off or completion email;
- the invoice issued after the period end, which is the strongest confirmation of all.
When the post-period invoice differs from the accrual by more than a little, investigate: either the estimate method needs improving, or some of the work was not chargeable after all.
Work in progress in service businesses
Unfinished jobs at the period end raise a slightly different question. A surveyor half-way through a valuation report, an accountancy firm with year-end jobs in progress, or a builder part-way through a fixed-price refurbishment all have work in progress: time and costs spent on work that is not complete and not yet billed.
There are two ways the numbers can appear, and the contract decides which applies:
- At contract revenue (as accrued income). Where the service is delivered over time and the customer benefits as you work, FRS 102 Section 23 recognises revenue by reference to progress towards completion, provided the outcome can be estimated reliably. The unbilled part of the earned revenue appears as accrued income or “amounts recoverable on contracts”, valued at its selling price, not its cost. For accounting periods beginning on or after 1 January 2026, Section 23 was rewritten around a five-step model, but the broad result for services delivered over time is the same.
- At cost. Where the customer only obtains the benefit on completion, or the outcome cannot yet be estimated reliably, revenue is limited or deferred. Costs incurred that you expect to recover are then carried forward, typically at cost, until revenue can be recognised. Any expected loss on a contract is recognised straight away.
For both, track on each job the hours spent at cost rate, direct expenses, the agreed fee and an honest estimate of the percentage complete. Value by staff cost (salary plus employer on-costs), not by charge-out rate, when carrying work at cost. Review the list for jobs that have stalled; work the customer will never pay for has no value.
In the nominal ledger, keep service WIP in its own current asset account (separate from manufacturing stock and from accrued income), and present it within stocks or debtors consistently from year to year. Because WIP and accrued income both change taxable profit, your accountant will want the job list and the basis behind it in the year-end pack.
If your timesheets and invoices already live in one system, the unbilled figure is a report rather than a spreadsheet; that is one of the things worth checking in a Nexbal trial.